Academic journal article Academy of Marketing Studies Journal

To Pay or Not to Pay a Price Premium for Corporate Social Responsibility: A Social Dilemma and Reference Group Theory Perspective

Academic journal article Academy of Marketing Studies Journal

To Pay or Not to Pay a Price Premium for Corporate Social Responsibility: A Social Dilemma and Reference Group Theory Perspective

Article excerpt

INTRODUCTION

In May 2009, Starbucks launched a print advertising campaign that emphasized the social mission of the company. The campaign seemed to provide reasons to consumers justifying the premium price of coffee at Starbucks. The advertisement highlighted two reasons for this price. First, Starbucks is the biggest purchaser of Fair Trade coffee in the world. Second, the company rewards its well-trained employees by offering full healthcare coverage to everyone who works at least 20 hours a week. The message stressed that when consumers buy Starbucks coffee, they buy into something bigger than just a cup of coffee. That something bigger is Fair Trade and employee healthcare coverage, for both of which the consumer pays a price premium (PP) over non-Starbucks coffee. The tagline of the advertisement read, "It's not just what you're buying. It's what you're buying into."

The above campaign illustrates a compelling argument in marketing strategy, that some consumers reward companies for socially responsible initiatives. Since only 10% of companies report publicizing their good deeds, the question arises whether more corporate communication is needed to make consumers aware of the companies' corporate social responsibility initiatives (Wigley, 2008). The term corporate social responsibility (CSR) refers to all socially responsible endeavors adopted and implemented by an organization. Research shows that companies that choose to invest in CSR are rewarded in several ways. In general, consumers appear to provide great support for companies that are socially and environmentally (Brown & Dacin, 1997; Creyer, 1997; Pam S. Ellen, Mohr, & Webb, 2000; Murray, 1997; Sen & Bhattacharya, 2001).

This article examines one specific type of socially responsive consumer behavior-willingness to pay a price premium (WTP-PP), a higher price for products of socially responsible companies. This consumer action is of significant importance to companies since CSR can necessitate a large amount of capital investment in business processes and outcomes (Bhattacharya & Sen, 2004). The article explains the above difference in consumer response (WTP-PP), by framing it as a social dilemma and subsequently highlights factors borrowed from the social dilemma literature to discriminate between consumers who do and do not reward companies for CSR. Social dilemmas are situations in which members of a group face a choice either to cooperate in order to maximize group gain or to defect for self-interest (Messick & Brewer, 1983). In such a situation, "each individual receives a higher payoff for a socially defecting choice than for a socially cooperative one, yet all individuals have a higher payoff if all cooperate than if all defect" (Dawes, 1980, p. 173).

Therefore, the framework in this article suggests that the difference between consumers who reward companies for CSR by paying a PP for its products and consumers who clearly do not will depend on certain key factors related to the individual. These individual factors are social value orientation, trust in others, reference group influence (i.e. in-group identity and expectation of others' cooperation), perceived efficacy, and factors that influence the costs of cooperation to the individual (especially product substitutability and product preference). This article also draws on reference group theory that suggests that consumer decision to make the trade-off between self and collective group interests may also be dependent on the pressure to comply with the expectations and behaviors of significant reference groups (e.g. pro-social consumers' choice to cooperate and therefore reward socially responsible companies via PP).

CONCEPTUAL BACKGROUND

This section presents a brief background of the literature on socially responsible consumerism with reference to WTP-PP, and a review of the research in social dilemma and reference group theory. …

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